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2023 Quebec Budget commentary
March 22, 2023
Authored by RSM Canada LLP
Lauren Morrison CPA, CA shared this article
TAX ALERT | March 22, 2023
On March 21, 2023, Quebec Finance Minister Eric Girard delivered the Quebec 2023 Budget Plan (the 2023 budget). Quebec tabled a fiscal framework that focuses on the economy, education, health, and the environment, while maintaining a prudent and responsible financial framework.
The Quebec government heralds the 2023 budget as delivering the most important tax cut in the history of Quebec. 4.6 million Quebecers are expected to benefit from tax cuts resulting from a reduction in personal income tax rates.
The 2023 budget forecasts a balanced budget by 2027-28, with an estimated deficit of $4 billion in 2023-24.
Quebec Budget 2023
Business income tax measures
New tax holiday for large investment projects
To increase productivity and stimulate business growth, the Quebec government is proposing a new tax holiday on otherwise required revenue and employer contributions to the Health Services Fund. This new tax holiday applies to companies that carry out large investment projects of over $100 million up to a maximum of $1 billion per project.
Replacing the pre-existing tax holiday, this new tax holiday will:
- Allow more sectors to qualify for the holiday, including but not limited to agriculture and forestry, extraction of critical minerals, manufacturing, wholesale and retail trade, transportation and warehousing, information and cultural industries, scientific and technical services, and the arts.
- Provide basic assistance of up to 15% of eligible investments for a project in metropolitan areas, and an enhanced incentive of up to 25% of eligible investments in territories that score lower on the economic vitality index.
- Simplify the application process and allow businesses to apply the tax holiday to all eligible tax expenses, rather than just those arising from the investment project.
The maximum period to benefit from the tax holiday is 10 years, divided into 10 equal parts.
The new measure will take effect the day after the budget speech on March 22, 2023, and businesses will have until Dec. 31, 2029, to submit their projects.
More Quebec businesses can utilize this enhanced tax holiday to invest in large projects.
Tax credit for the production of multimedia titles
To support production of Quebecois multimedia content, Quebec offers a tax credit on eligible productions, defined as events or multimedia environments offering an educational or cultural experience at a venue outside Quebec.
To further support businesses in the digital creativity sector, the Quebec government proposes to improve the existing tax credit by:
- Expanding the scope of qualified labour to all services rendered in Quebec to produce an eligible project.
- Increasing the cap on labour expenditures from 10% to 60%.
The tax credit has been expanded to be more responsive to the current environment of creative businesses in Quebec and will assist by providing $24.4 million of support over the next five years.
Individual income tax measures
Personal income tax rate reduction
In an effort to stimulate labour supply and contribute to economic prosperity, the Quebec government is announcing a reduction in the personal income tax rate starting in 2023. This will provide a 1% decrease in the bottom two tax bracket rates as follows:
- A decrease from 15% to 14% for the first tax bracket rate.
- A decrease from 20% to 19% for the second tax bracket rate.
To maintain consistency in the tax system, the conversion rate for personal tax credits is also being reduced by 1% from 15% to 14%. Below is a table outlining the 2023 personal income tax rates:
Up to $49,275
More than $49,275 up to $98,540
More than $98,540 up to $119,910
More than $119,910
Conversion rate for personal tax credits
Amid the current labour shortage, high taxes can be a barrier to consumption and savings. The personal income tax rate reductions announced in the 2023 budget will help make Quebec more attractive to workers while also stimulating economic growth.
Refundable solidarity housing tax credit
The refundable solidarity tax credit is for low- and middle-income families and is assigned based on determined need and income. The Quebec government plans to double the indexation rate of the housing component of the refundable solidarity tax credit to help taxpayers deal with increased housing costs. Individuals who have a tax payable or live in unsubsidized housing could benefit from this additional tax assistance.
Effective as of July 2023, the housing component of the refundable solidarity credit will now be indexed at a rate of 12.88%. This enhancement represents an additional $291.7 million in assistance over five years that will benefit 1.8 million people.
With significant increases in the cost of rent due to rising property tax, low- and middle-income individuals can take advantage of this expanded credit to help offset some of their housing costs.
Quebec has two labour-sponsored funds that invest in Quebec’s economy and provide tax-beneficial opportunities for Quebecers to save. Starting in 2024, the tax credits for individuals who purchase shares in the labour-sponsored funds will be only available to taxpayers whose taxable income is equal to or below the starting threshold of the top tax bracket. Shareholders of the labour-sponsored funds will also be required to retain their shares in the funds for five years instead of two. This policy will be implemented gradually until it takes full effect on June 1, 2026.
Overall, these changes will restrict the tax credit advantages for investing in labour-sponsored funds as well as restrict the flexibility of investors to dispose of their shares to meet personal financial goals.
Other tax measures
Increase in specific duty on new tires for road vehicles
To help with funding the Quebec Integrated Used Tire Management Program, Quebec will increase the duty on new tires for cars. The increased duty is an environmental measure meant to help pay for the rising costs of processing scrap tires which has increased since Oct. 1, 1999, when the program was first implemented. Effective July 1, 2023, the specific duty on new tires for road vehicles will be $4.50 and $6.00 for truck tires.
The cost of purchasing new tires will increase due to the rising cost of recycling.
Changes to the Quebec Pension Plan (QPP)
The Québec Pension Plan (QPP) and the Canada Pension Plan (CPP) are public plans designed to provide a compensatory income to partially offset the loss of work income upon the retirement, disability or death of a worker. In order to encourage the retention of experienced workers in Quebec, QPP legislation will be amended as of Jan. 1, 2024, to provide workers aged 65 or older with the option to stop paying QPP contributions, provided they are also receiving QPP or CPP retirement pension. This change will put the QPP in line with current CPP legislation that already provides for the election to stop making CPP contributions once a worker reaches the age of 65.
This change allows for greater flexibility for aging workers in evaluating their personal financial circumstances against whether it makes sense to continue contributing to QPP.
Other administrative measures
Improvements to Quebec’s tax administration
In the 2022 budget, Quebec aimed at creating a simplified and more efficient tax administration model through Revenu Quebec (RQ) by investing in project VISION. The Quebec government proposes to continue this investment with the 2023 budget in the following key areas:
- For individuals, RQ will launch a pilot project to assist low-income households by offering pre-filled tax returns, where the taxpayer will have the choice of confirming the proposal or completing their own return.
- For businesses, RQ is developing an electronic payroll service allowing employers to transmit information directly from their payroll systems each pay period, lessening the current administrative reporting burden.
- For both individuals and businesses, RQ intends to launch a technical support team to assist taxpayers in utilizing RQ’s digital services.
Quebec is the first province to offer pre-filled tax returns, which paves the way for a more streamlined tax compliance system for simple tax filers.
To counter tax evasion, tax avoidance, and fraud against the government, the Quebec government continues to invest in targeted responses. The 2023 budget proposes to invest an additional $8 million into these initiatives, specifically by allocating funds to:
- Deploy new tax audit initiatives at RQ, including the hiring of additional staff
- Focus on prevention of tax evasion in the construction sector.
- Boost efforts to counter tobacco and alcohol smuggling activities.
- Step up the fight against economic crime involving cryptoassets.
- Maximize the recovery of criminal assets.
The fight against economic crime involving cryptoassets requires a particular set of new tools. Due to the constant evolution of the technological environment, the Quebec government’s increased funding aims to:
- Improve the quality of digital evidence.
- Improve information technology expertise.
- Detect fraud schemes earlier to allow for quick intervention.
The Quebec government is taking targeted action against factors that unfairly erode the Quebec tax base and is showing initiative into combatting crime.
Clara Pham, Partner
Nakul Kohli, Senior Manager
Daniel Mahne, Manager
Julie Poulin, Manager
Sigita Stacey, Senior Associate
Cassandra Knapman, Senior Associate
Elizabeth Ojesekhoba, Associate
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Source: RSM Canada
Used with permission as a member of RSM Canada Alliance
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